Planning for education costs

In today's world, success can often be correlated to a good education. Unfortunately, the cost of all forms of education is on the rise.

Average college tuition and fees rose over 3 percent in 2015-2016, according to U.S. News data, breaking down as follows1:

Private school tuition and fees averaged $32,599 in 2015-2016, according to data reported by ranked private universities in an annual survey.

At public universities, out-of-staters paid an average of $20,729, while residents paid $8,957, according to data reported by ranked public colleges and universities.

While a college education is a worthwhile investment, it's forcing many students to take on significant debt in order to attend. Nearly 70% of graduates from the class of 2014 took out institutional, state or federal loans, graduating with an average $28,077 in debt. Understandably, many families are concerned about how to fund their children's education. Foresters Financial can help. We offer several possible solutions to help you cover educational expenses.

What options do I have for paying educational costs?

When it comes to meeting the costs associated with education, there are a variety of potential solutions including 529 College Savings Plans and Education Savings Accounts to IRAs and Custodial Accounts that offer special provisions to help pay for higher education expenses. We can help you figure out which ones might work for you.

The money in Coverdell education savings accounts also grows tax-deferred and may be withdrawn tax-free if used for qualified education expenses – but these can also include the costs of private elementary and high schools.

Custodial accounts, known as UGMAs (Uniform Gifts to Minors Act) and UTMAs (Uniform Transfers to Minors Act), let you put money or other assets in trust for a minor child and, as trustee, manage the account until the child reaches 18 or 21, depending on your state. That money can then be used for college, if parent and child agree.

529 College Savings Plan

Education Savings Accounts (ESAs)

IRAs

Custodial Accounts UGMAs and UTMAs

Overview

With their flexibility and high contribution limits, 529 Plans are an excellent choice for many families trying to save for future education expenses

529 Plan savings grow tax-deferred and withdrawals are tax-free when used for qualified college expenses, including tuition, fees, books and room and board at any accredited institution.

ESAs can help pay for a wide range of qualified expenses. Money can be withdrawn tax-free as early as kindergarten to pay for qualified expenses like books, uniforms and school equipment.

Overview

While mainly intended to function as retirement vehicles, Traditional and Roth IRAs have built-in provisions that can make paying for higher education a bit easier – if you start early enough.

Overview

Custodial accounts, known as UGMAs (Uniform Gifts to Minors Act) and UTMAs (Uniform Transfers to Minors Act), allow parents to put money or other assets in trust for a minor child and, as trustee, manage the account until the child reaches 18 or 21, depending on the state of residency. At that age, the child owns the account and can use the money for tuition, or other purposes.

Contribution limits

The contribution limits vary depending on the plan, but in some cases it can be over $250,000.

Contribution limits

There is a yearly contribution limit of $2,000 per child, and the beneficiary must be younger than 18.

Certain income limitations may apply.

Contribution limits

Spouses can each contribute a maximum of $5,500 per year. You can contribute $6,500 annually if you’re 50 or older.

Certain income limitations may apply

Contribution limits

There’s no limit on how much a parent can put in a custodial account. However, annual contributions exceeding $14,000 per person will trigger the gift tax.

ESAs offer the potential for tax-deferred growth and tax-free withdrawals2

Money can be withdrawn tax-free to pay for qualified expenses for private elementary school and high school, as well as college.

Tax incentives

Contributions into your Roth IRA are not tax deductible, but withdrawals and distributions are generally tax-free.

Tax incentives

Full-time students under age 24 pay no tax on the first $950 of unearned income and the child’s rate on the next $950. Earnings above $1,900 are taxed at the parents’ marginal rate.

Withdrawal rules

Withdrawals can only be used for education expenses such as tuition, fees, books and room and board at an accredited institution.

If you withdraw the money for non-qualified expenses, you may be subject to taxes and a 10% penalty on earnings

Withdrawal rules

ESA withdrawals are tax free when used to cover qualified education expenses.

If you withdraw the money for non-qualified expenses, you may be subject to taxes and a 10% penalty on earnings

Withdrawal rules

Withdrawals for college expenses are penalty-free under certain circumstances with investors paying taxes only on the earnings portion of their withdrawals.

The 10% early-withdrawal penalty on earnings can be avoided if the money is used for educational expenses.

Withdrawal rules

There are no withdrawal rules or penalties with a custodial account provided distributions are used for minor.

Features

529 plans set no income limit and have a high limit on contributions.

Sponsored by 50 states and the District of Columbia, 529 plans let two-thirds of states give residents a tax deduction or another tax break for contributions.

You are permitted to invest in other states’ 529 plans but you may lose in-state tax benefits.

Individuals can open a 529 Plan account for any beneficiary, including themselves

If your child receives a scholarship or decides to skips college, you can change the designation to another child without losing the tax benefits

Features

ESAs can help pay for a wide range of qualified expenses starting as early as kindergarten.

Money can be withdrawn tax-free to pay for qualified expenses for private elementary school and high school, as well as college.

The individual who opens the account maintains direct control over the underlying investments and can tweak investments as desired.

Features

With a Traditional IRA or Roth IRA, you can always access principal without incurring tax or penalties for educational expenses. Earnings may be subject to income tax.

Features

Investment choices in custodial accounts aren’t restricted, as they are with 529 plans.

1 Paying for College, U.S. News and World Report, Sept. 9, 2015

2 Non-qualified withdrawals are subject to federal and state income tax and a 10 percent penalty. Contact your registered representative for more information.

Neither Foresters Financial nor its affiliates provide legal, tax or estate planning services. Should you require such services, you should consult a legal, tax or estate planning professional.

For more information about any of the First Investors Funds or variable insurance products from Foresters Life Insurance and Annuity Company, you may obtain a free prospectus by downloading it from our website, contacting your registered representative, or calling 800 423 4026. You should consider the investment objectives, risks, fees or charges, and expenses carefully before investing. The prospectus, or in the case of a variable insurance product, both its contract and underlying fund prospectus, contains this and other information, and all applicable prospectuses should be read carefully before you invest or send money. An investment in one of these products is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency.

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